Stock markets, banks, and economic growth

Ross Levine (rosslevine@stanford.edu) and Sara Zervos

No 1690, Policy Research Working Paper Series from The World Bank

Abstract: Using data on 49 countries from 1976 to 1993, the authors investigate whether measures of stock market liquidity, size, volatility, and integration in world capital markets predict future rates of economic growth, capital accumulation, productivity improvements, and private savings. They find that stock market liquidity-as measured by stock trading relative to the size of the market and economy - is positivelyand significantly correlated with current and future rates of economic growth, capital accumulation, productivity growth, even after controlling for economic and political factors. Stock market size, volatility, and integration are not robustly linked with growth. Nor are financial indicators closely associated with private savings rates. Significantly, banking development -as measured by bank loans to private enterprises divided by GDP -when combined with stock market liquidity predicts future rates of growth, capital accumulation, and productivity growth when entered together in regressions. The authors determine that these results are consistent with views that (1)financial markets and institutions provide important services for long-run growth, and (2)stock markets and banks provide different financial services.

Keywords: Economic Theory&Research; Banks&Banking Reform; Fiscal&Monetary Policy; Financial Intermediation; Payment Systems&Infrastructure; Economic Theory&Research; Banks&Banking Reform; Financial Intermediation; Achieving Shared Growth; Governance Indicators (search for similar items in EconPapers)
Date: 1996-12-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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Related works:
Journal Article: Stock Markets, Banks, and Economic Growth (1998)
Working Paper: Stock markets, banks and economic growth
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